US and European natural gas prices are sliding as warmer weather reduces demand for the heating fuel, and storage levels remain high. Risks of a global energy crisis are diminishing for now — well — that’s until the next cold blast strikes. 

The polar vortex that sent much of the Lower 48 into a deep freeze at the end of 2022 ended last week. Now, much of the US will see warmer-than-normal temperatures through mid-Jan. 

The National Oceanic and Atmospheric Administration’s latest 6-10 Day Temperature Outlook shows that nearly all Lower 48 will experience above-average weather. 

NOAA’s 8-14 Day Temperature Outlook suggests the same. 

Weather data via Bloomberg shows Lower 48 temperatures are expected to remain above a 30-year average through mid-month. 

And this will reduce heating demand. 

US NatGas storage entered into a drawing period in mid-Nov. and has been sliding since.  

A weaker heating demand outlook has sent US NatGas prices down nearly 9% to $4.062 per million British thermal units on the New York Mercantile Exchange in early Tuesday trading. Prices are back to levels not seen since early February 2022. 

Across the Atlantic, EU NatGas touched the lowest levels since the start of the Ukraine war. 

“The risk of extreme market tightness that people were worried about before the winter started seems low now,” BloombergNEF’s Abhishek Rohatgi wrote. 

Warmer weather in Europe has eased concerns about blackouts and rationing as stockpiles increase:

In fact, Europe has been able to add more gas into storage in the last few days amid a mix of curbed heating needs and typically lower consumption during the holiday season. -Bloomberg

EU NatGas storage increased last week. 

Temperatures across Central EU are expected to hold above seasonal levels through at least the mid-month. 

Sign of relief worldwide: NatGas prices slide in the US, EU, and Asia. 

We noted days ago the risks of a collapsing polar vortex in the Arctic could send parts of the EU into a chill later this month. And it’s only a matter of time before cold weather returns to the US. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

For many investors who started their investing journey following the financial crisis, forward returns will be disappointing compared to the last decade. But it won’t be solely due to high valuations.

I recently discussed why the next “Secular Bear Market” may have started, which touched on the issues of valuations and forward returns. To wit:

“Three items drive secular bull markets: 1) valuation expansion, 2) earnings growth and 3) falling interest rates. The most prominent driver of secular returns are periods of valuation expansion and contractions.”

“The chart above shows the history of secular market periods going back to 1871 using data from Dr. Robert Shiller. You will notice that secular bull markets begin with CAPE valuations around 10x earnings or even less. Secular bear markets tend to start with valuations of 23-25x earnings or greater. (Over the long-term, valuations do matter.) Most notably, secular BEAR market periods are defined by near-zero returns during the valuation contraction process.”

As we know, a decent correlation exists between future returns and current valuations

As we have often stated, such does not mean that every year over the next decade will foster low returns. It only suggests that the total return will be low over the entire decade. History shows that such is the case.

“Notably, as an investor, only 5-periods are secular bull markets (where prices are increasing) over the last 150 years. Those five periods account for 100% of all the index gains. In other words, the outcome was disappointing if you invested on a buy-and-hold basis during any other period.”

However, another reason forward returns will likely be substantially lower than in the past has nothing to do with valuations.

The Monetary Illusion Of Growth

How often have you seen the following chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?

It is a true statement that over the very long term, stocks have returned roughly 6% from capital appreciation and 4% from dividends on a nominal basis. However, since inflation has averaged approximately 2.3% over the same period, real returns averaged roughly 8% annually.

The chart below shows the average annual inflation-adjusted total returns (dividends included) since 1928. I used the total return data from Aswath Damodaran, a Stern School of Business professor at New York University. The chart shows that from 1928 to 2021, the market returned 8.48% after inflation. However, notice that after the financial crisis in 2008, returns jumped by an average of four percentage points for various periods.

After more than a decade, many investors have become complacent in expecting elevated rates of return from the financial markets. During that period, investors developed many rationalizations to justify overpaying for assets.

However, the problem is that replicating those returns becomes highly improbable unless the Federal Reserve and Government commit to ongoing fiscal and monetary interventions. The chart below of annualized growth of stocks, GDP, and earnings show the outsized anomaly of 2021.

Since 1947, earnings per share have grown at 7.72%, while the economy has expanded by 6.35% annually. That close relationship in growth rates is logical, given the significant role that consumer spending has in the GDP equation.

The market disconnect from underlying economic activity over the last decade was due almost solely to successive monetary interventions leading investors to believe “this time is different.” The chart below shows the cumulative total of those interventions that provided the illusion of organic economic growth.

Over the next decade, the ability to replicate $10 of interventions for each $1 of economic seems much less probable.

A Return To Normal

Over the last decade, massive monetary interventions distorted financial markets from their respective underlying economic linkages. As noted above, the deviation from long-term growth trends is unsustainable, particularly when factoring in demographic trends.

Over the next decade, the elderly population will begin systematically withdrawing assets from the market for retirement. Given the rise in individuals approaching retirement against a declining working-age population, the problems for pension and welfare systems become more apparent.

Nonetheless, economic growth will run below previous trends between an aging demographic of accumulators becoming net distributors of assets and less monetary support in the future.

Therefore, returns must revert to historical norms. Such will result from profit margins and earnings returning to levels that align with actual economic activity.

Of course, one must also consider the drag on future returns from the excessive debt accumulated since the financial crisis.

That debt’s sustainability depends on low-interest rates, which can only exist in a low-growth, low-inflation environment. Naturally, a low inflation and slow growth economy do not support excess return rates.

It is hard to fathom how forward return rates will not be disappointing compared to the last decade. However, those excess returns were the result of a monetary illusion. The consequence of dispelling that illusion will be challenging for investors.

Does this mean investors will make NO money over the decade? No. It means that returns will likely be substantially lower than investors have witnessed over the last decade.

But then again, getting normal returns may be “feel” very disappointing to many.

Good news, right?

German inflation plunged more than expected in December (EU Harmonized -1.2% MoM vs -0.8% exp) – the biggest MoM drop since Jan 2015.

Obviously, there appears to be a great deal of seasonality in this monthly series.

This slowed the YoY rate of inflation to +9.6% (vs +10.2% exp)

Bloomberg reports that the decline to single digits in the main rate masks an increase in food costs across Germany at the end of 2022, aggravating a squeeze on the poorest families and stoking the risk of a wage-price spiral.

However, the Bundesbank predicts consumer inflation will remain above 7% in 2023 and has cautioned against misinterpreting single data reports as a shift in trend, citing a “great deal of uncertainty.”

Additionally, a strong labor market in Germany, where unemployment unexpectedly dropped in December, supports the ECB’s hawkish argument that extending an historic series of rate-hikes with at least two more half-point steps early this year.

Authored by Thomas Brooke via Remix News,

A deeply pessimistic British electorate expects the cost of living crisis to continue to hamper the country in the calendar year to come with seven in ten Brits having little faith in the ability of Rishi Sunak’s administration to improve their fortunes in 2023, latest polling reveals.

A PeoplePolling survey, commissioned by GB News, revealed as few as 1 percent of respondents were completely confident the government would effectively tackle the cost of living crisis which has seen inflation sky-rocket due to record-high energy prices.

Only 18 percent are “fairly,” “somewhat” or “slightly” confident in the government’s ability to ease the crisis, while 70 percent have little faith in Sunak’s administration to tackle financial pressures in the year ahead.

Labour voters at the last general election are typically the least confident in the government, with 90 percent pessimistic about its competence, however, a majority of Conservative voters from 2019 (53 percent) have also lost faith in the party they elected into government.

When asked for words which spring to mind to best describe their views of the year ahead, the most widely-used terms included “difficult,” “tough,” “challenging,” “bleak,” and “worrying.”

“S**t,” “f****d”, and “poverty” were also commonly-used phrases by respondents.

Source: Twitter, @GoodwinMJ

A majority of the public, some 60 percent of respondents, believe that 2023 will actually be worse financially for their families than the year just gone, with just 6 percent expecting it to be better, revealing the extent of the task ahead for the U.K. government to win back an evermore pessimistic electorate which is losing faith in its leaders to steady the ship.

Commenting on the polling results, academic and pollster Matthew Goodwin said U.K. Prime Minister Rishi Sunak was “heading into 202 facing some huge obstacles.”

He claimed the Conservative party’s recovery “has not just stalled but now appears to be going backwards.

Sir Keir Starmer and the Labour Party begin 2023 in prime position, with more than enough support for a majority at the next general election. Whatever Rishi Sunak does next, he’d better do it quick because the clock is now ticking, and he and his party are well behind.”

Haven’t heard any “Who wears short shorts?” jokes from Elon Musk lately, have we?

Tesla short sellers appear – for the first time in the company’s history – to finally be in control. One of the most highly shorted names since its inception, Tesla has done well to prove both skeptics and short sellers wrong.

The company’s stock is still up almost 500% over the last five years – but 2022 saw a -65% drop in the equity’s price which has short sellers feeling like they are back in the driver’s seat. And according to Yahoo Finance/Bloomberg, short sellers have reaped mark to market profits in 2022 of about $17 billion.

Citing data from S3 Partners, the report said that Tesla has lost about $670 billion in market value this year alone. Ihor Dusaniwsky of S3 told Bloomberg that he “expects short selling to persist until the stock reaches a bottom”. Astute analysis, Ihor…

“When Tesla’s stock begins to tick upwards, there should be a flurry of short covering which will help boost its stock price higher and quicker as shorter-term short sellers look to realize their outsized mark-to-market profits before they evaporate,” he added. 

Short interest in Tesla has always been elevated and this year’s move in the stock has emboldened long-term skeptics. The report noted: “At one point in 2018, more than one third of the stock’s entire free float was held short.”

Among those on the receiving end of the windfall are many shorts who got trounced with Tesla’s move higher between 2019 and 2022. But at least for now, they appear to have the upper hand.

Tesla short Mark Speigel’s fund ends 2022 up 75.5%, saw 17.4% rise in December alone – Investor letter

— Quoth the Raven (@QTRResearch) December 30, 2022

Recall, Tesla surged once again at the end of last week after Morgan Stanley’s Adam Jonas was out lowering his price target on Tesla stock from $330 to $250, but maintaining his overweight rating on the name and arguing that the recent selloff in the name has created an “opportunity”.

“We believe 2023 is shaping up to be a ‘reset’ year for the EV market where the last 2 years of demand exceeding supply will be substantially inverted to supply exceeding demand. Within this environment, we believe players that are self-funded (non-reliant on external capital funding) with demonstrated scale and cost leadership throughout the value chain (from manufacturing to up-stream material supply) can be relative winners,” Jonas wrote.

“We believe Tesla may bein position to extend its lead vs. the EV competition in FY23 (both legacy and start-up) even before consideration of IRA (Inflation Reduction Act) benefits where Tesla also stands out as the biggest potential winner,” he continued. 

We’ll have the next chapter in the Tesla drama show soon, as the company is expected to report its Q4 deliveries in the first few days of January. 

Authored by Ryszard Czarnecki via Remix News,

In reality, Budapest says out loud what Germany thinks, argues Polish MEP Ryszard Czarnecki…

However significant Viktor Orbán and Hungary may be, it is Germany whose voice is decisive inside the EU.

The fact that it is Orbán’s conciliatory statements on Russia that are highlighted rather than similar and even more far-reaching statements from Chancellor Scholz, French President Macron, Bulgarian President Radev, or Croatian President Milanovic, is enlightening.

Hungary, just as it has often been very critical of Brussels verbally but very pragmatic inside the European Council, has also verbally demonstrated its differences with Brussels regarding Russia while in the end always agreeing to sanctions imposed on that country.

In fact, Belgium was the last country to raise the veto, but since it is not governed by the right, no one complains. 

Hungary has used every debate on sanctions to fight for its own interests, which has often weakened sanctions. However, very similar exceptions have been secured by Italy, which can, for instance, continue to export clothes and shoes to Russia, something Italy secured before Giorgia Meloni came to power flanked by Matteo Salvini and Silvio Berlusconi.

But it is the Meloni government that gets attacked in the Western media for what it might do in the future with regard to Russia, whereas all is quiet about what the previous left-leaning administration already did. 

Orbán and Hungary are under the EU’s boot because the leftist majority always attacks the right, whereas it deliberately stays silent on the pro-Moscow policies that had been pursued by left and liberal-leaning governments.

It is hypocritical and an example of schizophrenia to criticize Hungary for sins that have been and still are being committed by Western governments.

International Monetary Fund Managing Director Kristalina Georgieva warned on CBS’s ‘Face the Nation’ in an interview aired on Jan. 1 that a third of the global economy will be in recession this year and investors must prepare for “a tough year, tougher than the year we leave behind.”

Kristalina explained recession risks are elevated “because the three big economies, US, EU, China, are all slowing down simultaneously.” She added that some countries will avoid recession, though “it would feel like a recession for hundreds of millions of people.”

“Our big worry is that with the economy slowing down globally, we are projecting global growth to go down to 2.7%, maybe even lower next year,” she said. In 2021, global growth was 6%. It slumped to 3.2% in 2022 and continues to decline as central banks worldwide unleash the most aggressive monetary policy tightening scheme in a generation to get inflation under control. 

Georgieva added the US might avoid a recession, but the situation looks bleaker in Europe, which has been hit hard by the war in Ukraine, she said. “Half of the European Union will be in recession,” she warned. 

“For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth. That has never happened before. And looking into next year for three, four, five, six months, the relaxation of COVID restrictions will mean bushfire COVID cases throughout China,” she said. 

Georgieva warned the world is “more shock-prone” than ever before. An energy crisis is plaguing the world — national security issues in Europe and Asia and liquidity issues in the banking system. The shocks of Covid are still not over though global supply chain congestion is receding.

Georgieva’s comments are alarming for investors hoping for a soft economic landing this year. The latest figures over the weekend pointed to more weakness in the Chinese economy. 

The official purchasing managers’ index for China’s factory activity shrank for the third consecutive month in December despite reopening efforts. The downturn is also visible in the purchasing managers index for manufacturing worldwide, slipping into a contraction in September. 

Besides the IMF, BlackRock, the world’s largest investment manager, has also warned a recession is imminent due to central banks aggressively boosting borrowing costs to tame inflation. According to a team of BlackRock strategists, their actions will ignite more market turbulence than ever before.

“Recession is foretold as central banks race to try to tame inflation. It’s the opposite of past recessions,” the team wrote in their 2023 Global Outlook, which said that the global economy has already exited a four-decade period of stable growth and inflation, and has now entered a period of heightened instability.

And when things get bad, BlackRock said, “Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. Equity valuations don’t yet reflect the damage ahead.”

Authored by Tsvetana Paraskova via OilPrice.com,

The UK arm of Extinction Rebellion will temporarily halt its tactics of disrupting public life and transportation with roadblocks and other high-profile protests, the environmental group said on New Year’s Day.

In a statement titled “We Quit,” Extinction Rebellion said that its New Year’s Resolution “is to halt our tactics of public disruption. Instead, we call on everyone to help us disrupt our corrupt government.”  

Extinction Rebellion and another environmental group, Just Stop Oil, have staged very public protests in recent years, including blockading key ringroads in London and heavily disrupting traffic, much to the resentment of many people who were late to work.   

In 2021, Extinction Rebellion’s Money Rebellion group daubed the building of the Bank of England with fake oil, saying the stunt was “designed to expose the role of banks in the climate and ecological crisis.”

In 2022, the campaign group also threw fake oil over the Barclays building in Northampton to protest against the bank’s continued funding of fossil fuels and targeted the HSBC headquarters, too.  

In November 2022, Extinction Rebellion and other aligned groups took nonviolent action at thirteen sites across central London, targeting the offices of companies and organizations which have links to the fossil fuel industry.

“The groups sent a universal message that it’s time to ‘cut the ties’ with fossil fuels,” Extinction Rebellion said at the time.

Now the new campaign tactics of the UK unit of Extinction Rebellion will aim to garner more public support for their efforts to draw attention to the consequences of climate change, the group said.

“As we ring in the new year, we make a controversial resolution to temporarily shift away from public disruption as a primary tactic,” Extinction Rebellion said in a statement.

“This year, we prioritise attendance over arrest and relationships over roadblocks, as we stand together and become impossible to ignore.”  

Authored by Aldgra Fredly via The Epoch Times,

Morocco has imposed an entry ban on all travelers from China due to the soaring COVID-19 infection rate in the country following Beijing’s abrupt u-turn on its strict zero-COVID policy.

Morocco’s Foreign Affairs Ministry said in a statement that the entry ban would apply to all arrivals from China, regardless of their nationality, and will take effect from Jan. 3 until further notice.

“This exceptional measure in no way affects the sincere friendship between the two peoples nor the strategic partnership between the two countries to which the Kingdom remains firmly attached,” the ministry said.

The ban aims to prevent a new wave of contamination in the country, it stated, adding that Morocco “closely followed” the virus situation in China through regular and direct contact with the Chinese side.

Morocco also extended its state of emergency until Jan. 31 to allow local authorities to impose measures to tackle the virus spread. The African nation has continued to renew its state of emergency since adopting it in March 2020.

Morocco became the first nation to ban arrivals from China after the Chinese Communist Party (CCP) lifted its zero-COVID policy last month.

Other countries, including the United States, Australia, Canada, Japan, South Korea, and Malaysia, have only imposed entry curbs on travelers arriving from China, such as requiring them to take COVID-19 tests before departure.

The Centers for Disease Control and Prevention (CDC) on Dec. 28 mandated COVID testing for all visitors flying from China to the United States, citing the Chinese regime’s failure to provide “adequate and transparent epidemiological and viral genomic sequence data.”

The United States was among the first nations to bar entry of foreign nationals from China under the former Trump administration in January 2020 when the novel coronavirus began to emerge from China.

China’s COVID-19 Outbreak

The CCP abruptly eased its strict COVID-19 restrictions in December after historic discontent over the draconian curbs. But without adequate planning and measures for a graduated retreat from the policy, the health system was left ill-equipped for a rapid rise in cases among a population that had little natural immunity to the virus.

Frontline services in China quickly became overcrowded, pharmacy shelves stripped bare, and hospitals stretched. Law enforcement facilities and judiciary shuttered.

People wait for medical attention at the fever clinic area in Tongren Hospital in the Changning district in Shanghai, on Dec. 23, 2022. (Hector Retamal/AFP via Getty Images)

As many as 37 million people per day were estimated to be contracting the virus in China, according to leaked minutes from a meeting of the country’s top health body confirmed by multiple news outlets.

The cumulative number of infections in the first 20 days of December likely reached 248 million—nearly 18 percent of the population—officials said during the National Health Commission’s internal meeting on Dec. 21, only 13 days after the regime rolled back some of its toughest anti-COVID measures.

The figure is exponentially higher than the regime’s official virus tally, and if accurate, it would mean that China’s outbreak is the largest in the world.

Authored by Gilbert Doctorow via AntiWar.com,

News about the impending removal of foreign forces from Syria that you will not get…from Western mainstream, specifically news from the Middle East that has been posted by an authoritative newspaper from the region, Al-Watan, of Doha, Qatar, but seems not to have been picked up by mainstream Western media.

My knowledge of it came from the so-called Free Press (Свободная Пресса) portal in Russia. I’d have learned about it sooner from the much better known RIA Novosti news agency, which also carried a lead story on the subject, but, sadly, RIA Novosti is banned in the European Union. Brussels obviously prefers for ours to be the Dark Continent where public opinion is manipulated from the offices of the Commission.

The news in question is about the announced results of negotiations held in Moscow days ago between representatives of Russia, Syria and Turkey. That such a three-way meeting was possible was due to the recent decision of Turkish President Erdogan to finally recognize the legitimacy of the Bashar Assad government in Damascus. In this connection, it has also been reported in Russian media that a face to face meeting of Erdogan and Assad is expected to take place in the second half of 2023.

The outcome of the negotiations in Moscow was Turkey’s announcement that it is about to withdraw all of its troops from Syria. As you may know, these troops had crossed over into Syria more than a year ago partly to seal the border from infiltration by jihadists but more importantly to separate and better control the Kurdish populations on both sides.

The pending removal of the Turks, presumably in exchange for certain Russian-backed guarantees on security and tighter administration of the Kurdish population in northeast Syria, leaves only the Americans as illegitimate occupiers of Syrian soil today.

The American operations in their country were recently denounced by Damascus for their plundering the oil wells and harm done to the entire economy of southeastern Syria.

Meanwhile, for the Turks, sensitivity to the Kurdish population in Syria is a significant contributing factor to their prickly relations with NATO generally. Ankara never accepted American sponsorship of the Syrian Kurds as a tool to be used against Damascus.

Source in Damascus on the Syrian-Turkish-Russian meeting:

-Erdogan’s media prepared to rapprochement
– Turkey agrees to a complete withdrawal from Syria
– Opening Aleppo-Latakia
– PKK militias are agents of America and Israel, and the greatest danger to Syria and Turkey. pic.twitter.com/3pSLxy0rvv

— Ibrahim Hamidi ابراهيم حميدي (@ibrahimhamidi) December 30, 2022

In the past few days there have been missile strikes against American forces in Syria from unidentified sources. In light of the new agreements between Turkey, Syria and Russia, we may assume that the military pressure on the Americans to evacuate will only increase in the weeks and months to come.